Blog Post

Is Apple About to Cut Out the Carriers?

Sources inside European carriers have reported that Apple has been working with SIM-card manufacturer Gemalto to create a special SIM card that would allow consumers in Europe to buy a phone via the web or at the Apple Store and get the phones working using Apple’s App Store.

It’s rumored that Apple (s aapl) and Gemalto have created a SIM card, which is typically a chip that carries subscriber identification information for the carriers, that will be integrated into the iPhone itself. Then customers will then be able to choose their carrier at time of purchase at the Apple web site or retail store, or buy the phone and get their handset up and running through a download at the App Store as opposed to visiting a carrier store or calling the carrier. Either way, it reduces the role of the carrier in the iPhone purchase. Gemalto and Apple have not responded to requests for comment. I’m also waiting to hear back from other sources to get more details.

However, if Apple is doing an end run around the carrier by putting its own SIM inside the iPhone, it could do what Google (s goog) with its NexusOne could not, which is create an easy way to sell a handset via the web without carrier involvement. Much like it helped cut operators out of the app store game, Apple could be taking them out of the device retail game. Yes, carriers will still have to allow the phone to operate on their networks, which appears to be why executives from various French carriers have been to Cupertino in recent weeks.

The Gemalto SIM, according to my sources, is embedded in a chip that has an upgradeable flash component and a ROM area. The ROM area contains data provided by Gemalto with everything related to IT and network security, except for the carrier-related information. The flash component will receive the carrier related data via a local connection which could be the PC or a dedicated device, so it can be activated on the network. Gemalto will provide the back-end infrastructure that allows service and number provisioning on the carrier network.

The model should work well in Europe, where the carriers tend to use the same networking technology and are far more competitive. It also means that customers can roam more easily with the iPhones, swapping out the carriers as needed. The iPhone has lost its exclusivity in much of Europe and other markets of the world, which makes this model a compelling one for consumers, but a nightmare for carriers. Apple could change the mobile game once again.

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147 Responses to “Is Apple About to Cut Out the Carriers?”

  1. its time for US and European telcos to look carefully at what telcos in India have done – the iphone is a complete failure in this large emerging market of 700 million subscribers. So much so that the telcos have not even bothered to launch the iphone 4 version. Telcos have built out large walled gardens of Value Added Services from which they are currently seeing upto 10% of their topline revenues (much higher margins). All this while completely neutering any moves by Apple, Google etc. By building large profiling databases and mining them well for core and non-core services, the telcos are building a barrier which Apple and Google will never be able to catch up to, and by then it will be too late for them to even try to do so.

    Unfortunately US and European telcos have taken the short-term easy route to revenues by giving in to the dumb pipe model which Apple is endorsing while laughing all the way to the bank.

    This is a wake up call to them before their dumb pipes corrode into zero margin, high cost headaches.

  2. Early this year I was looking & searching to suggest this idea to Google but I could not found any contact “poor Google”. Now it happen by Apple not me+google “if true”, customer will have excellent customer care while operators will take rest.

    The game will not stop between operators and Apple+ “handset manufactures” but I guess Apple+ will win and another competition start on …..

    Apple strategy is very easy. They are looking to telecom market as this equation 6x+6y= z then make it 6(x+y)= z; 6 is apple new business or share for example iPad, new sim….++i won’t tell++. This 6 based on market needs or customer demands……etc.

  3. I would pay full price for a phone. But I’ve never seen a major US carrier offer a lower price for the service when doing so. If I’m going to pay the amount that could subsidize a phone, I might as well use the phone.

  4. This is very meaningful, essentially it is what truphone calls TLA – truphone local anywhere – Amazing how fast apple learns, just launched the iPhone4, several month later the learning from truphone has been put into action and we will see an amazing service arising.

    Rumours about apple SIM card inside the phone
    – why not sell the voice and data like an app
    – apple already sells apps for music, films, books, games, third party inventions, why not the rest

    it could be argued this can be taken with a pinch of salt and humour:

    – argue you need to decide at birth if you are an apple or a google, because only apple birth clinics take apple compatible kids.
    – are you a google or apple, both do not want to be friends with each other
    – apple and google are probably also not sexual compatible

    Who wanted to RULE the world, was the company original from Seattle and started with an M…?

  5. “it could do what Google with its NexusOne could not”

    Why do you expect Apple to encounter any less resistance from carrier than Google did? It’s still going to hit the same carrier-device lock-in that Google did with the Nexus One…

  6. Hang on a moment. How is this different to what is available in most european countries (eg the UK) RIGHT NOW.

    eg: I walked into Apple Regent St (London). Walked out with an iPhone 4*, tho I am £499 poorer. Open it, put in my o2 sim. Connected. Pop out the O2 sim, put in a 3 sim. Connected. Go to NZ next month, pop in a XT sim. Connected.

    Only country I can’t do this in is the US, ‘cos AT&T will not sell a prepaid sim to a iphone owner. This is because AT&T is broken, not anything Apple has to do.

    If anything, this restricts my use. I have to go to the carrier to change the SIM (or apple), not just grab a SIM and go (o2 gives them away in 4 packs FFS!)

    I’ll stick to the “inconvenience” of having a sim card, thanks.

    * ok, I got mine online from apple, but hey, same thing

  7. The SIM is a trusted authentication platform. Carriers and their subscribers trust that it can’t easily be forged, cloned, or tampered with, otherwise the billing agreements are in question. Further, secondary services, such as payment by SMS are left in question. How will the carriers trust the management of the SIM images?

  8. Apple did look at the MVNO model prior to the release of the first generation iPhone:

    http://appft1.uspto.gov/netacgi/nph-Parser?Sect1=PTO1&Sect2=HITOFF&d=PG01&p=1&u=/netahtml/PTO/srchnum.html&r=1&f=G&l=50&s1=%2220080085707%22.PGNR.&OS=DN/20080085707&RS=DN/20080085707

    It was scrapped at the time because it was deemed to far removed from Apples core business, and too complicated. It does show that the are interested in looking at their involvement in the telecoms world as more than pure handset/apps.

    Regards
    Hamish

  9. So let me get this right – Apple wants to determine which GSM carrier I can use with my phone, by installing a chip that they control thru iTunes/App Store?

    Didn’t that same “approach” piss off the EU when Microsoft forced IE on Windows a few years back???

    The whole advantage of GSM is the ability to change SIM cards (and carriers) freely. Why does Apple HAVE TO KNOW which carrier I want to use now, or next week for that matter? I don’t see this approach winning too many fans, simply because phones that are locked down don’t resell and become obsolete.

    If Apple really wants to go direct to public, they should follow HTC’s example – factory unlocked, 5-band, use any SIM on any network in the world, and offer it through retailers like Expansys. Charge a premium if you want, but it’s how I bought my TP2, avoiding the awful model sold by the carriers, and I couldn’t be happier.

  10. It seems apple wants total control over phones and customers as well….
    Who knows what they would this feature for? If they wanted sell unlocked phones they could do this without problems – just without sim card. Having they own sim card means far more control. I definitely won’t buy such thing.

  11. Were Apple to truly get into this fight, it would be huge for consumers, not necessarily because of anything that Apple would offer (although some consumers would surely consider it huge), but because a win by Apple would unravel the whole system.

    The severe dedication of Apple’s curated consumer base gives Job’s the chutzpah to bound where Google has crawled. Bringing “*freedom* to chose any carrier” is not just a bold move, but likely a wildly profitable long-term strategy, and at minimum wickedly delicious PR for Apple.

  12. As already mentioned, travelers in Europe want to change their SIM to avoid the horrendous roaming fees. (Countries in Europe are small, so Europeans travel much often abroad than US citizens.) I don’t believe You can download a prepaid SIM; and in general it will be up to Apple (and their conditions) which carrier will be available.
    In Addition the method won’t prevent eupopean customers from the need of visiting a carriers shop. All european contries require the carries to identify the customer by means of an identity card or passport. The last ones were impelled to withdraw anonymous SIMs years ago under preassure of the US government in the war against terror. (Much more astonishing to Europeans traveling to the US too see, that they can simply go to a supermarket and buy a cellphone for cash and no-one is asking anything.)

  13. Is this the same concept as CDMA? (if they ever come to that..) I’m not very keen to this idea but is this Apple attempt to redefine GSM? I don’t know how they could possibly do this, even if they’re apple. Rumors are rumors though. Possible attempt to figure out the new iPhone 5 design and such.

    Also thats bad news for a t-mobile unlockers, I guess more people will be heading to droid if this happens.

  14. akatsuki

    This is not about cutting out the carriers, this is about dealing them in. Welcome to not being able to switch carriers post-jailbreak, welcome to ridiculous roaming fees.

  15. Pete Austin

    Many commentators are saying that this won’t work, because phones won’t sell unless there is a long contract to subsidize the price.

    That long contract can be with *Apple*. They will pass on a small fraction of the money to whichever network you choose this month.

  16. Isn’t the mobile industry going this way anyway? What with Google Voice for Android, (I know that they’re currently rumours but) also the possible Facebook phone and their recent deal with Skype, could mean that carriers call/text/data plans could soon be an outdated consumer package.

    In my opinion it looks like Apple are predicting and reacting to this possible outcome.

  17. Does that mean I can only use Apple-approved carriers then?

    I am sure they won’t take away the SIM-free-ness of the iPhone – the one most important feature to me in any phone. But if the carrier has to work with Apple to sell their data plans through iTunes, then carriers that Apple’s never heard of won’t work. Or carriers that don’t have a deal with Apple. That would be bad.

    I have 3 or 4 different SIM cards for the countries I visit most often. Having a working phone in a new country I am visiting is very convenient, and no, I am not going to pay for silly roaming fees. A phone that costs $2/minute is not much of a phone at all.